Last week, gold prices hit a new high of $4,381 per troy ounce. Although prices have dropped recently, they are still 50% higher than at the beginning of the year. The rise in gold prices happened in two main waves: first, a 25% increase between January and April, when prices stabilized around $3,300, and then a second wave starting in August, which peaked at almost 30%.

Factors Influencing Gold Prices

Traditionally, gold prices have been influenced by US real yields. Gold competes with risk-free investments, like US government bonds. Usually, when interest rates go up, gold looks less appealing. But when rates fall or inflation rises, gold becomes more attractive. However, since mid-2023, this trend has changed. Gold prices have continued to rise even as real yields increased, which normally would make gold less attractive. Since September, there has been a slight drop in real yields, which helped gold prices rise, but it’s not enough to explain all of the increase. Other factors are now affecting gold demand and prices beyond the usual link with US real yields. Financial analysts believe these external elements play a big role in gold’s price changes. The exact impact of these factors is still being studied. With recent price movements, it’s clear that the gold market is experiencing extreme volatility. The surge to a record high of $4,381 last week, followed by a sharp drop, indicates that large price swings are likely to continue. Implied volatility for gold options has surged, with the GVZ index—a measure of gold’s expected volatility—recently reaching 25, a level last seen during market stress in early 2024. The old method of tracking US real yields to predict gold prices is no longer reliable. We are witnessing a structural shift where new factors now drive gold demand. Recent data shows that global central banks have bought over 800 tonnes of gold by the third quarter of 2025, setting a path for a new record as they diversify their reserves.

Opportunities and Risks in Gold Market

This strong demand comes as a hedge against sovereign debt risks and geopolitical instability. With the US national debt surpassing $36 trillion, there is an increasing shift toward gold as a store of value outside traditional currencies. Thus, we can see the current price drop as a potential buying opportunity, perhaps using call option spreads to prepare for a price recovery. However, the drop from the record high is a crucial technical signal that shouldn’t be overlooked. For those holding long positions in gold futures or ETFs, managing downside risk is essential now. One way to do this is by buying out-of-the-money put options, which serve as a cost-effective way to protect against deeper price corrections in the upcoming weeks. The current environment of high uncertainty also presents possibilities for non-directional strategies. A long straddle—where you buy both a call and a put option at the same strike price—could be useful. This strategy will benefit if gold makes a major move, either up or down, which seems likely. Create your live VT Markets account and start trading now.

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